ADB loans Punjab $200m to boost fiscal position

3 Dec 14
The Asian Development Bank (ADB) and the government of India have signed a $200m loan to help Punjab state improve a weak fiscal situation that is undermining growth, investment and socioeconomic development.

By Mark Smulian | 3 December 2014

The Asian Development Bank (ADB) and the government of India have signed a $200m loan to help Punjab state improve a weak fiscal situation that is undermining growth, investment and socioeconomic development.

Teresa Kho, country director of ADB’s India Resident Mission, said this had arisen because ‘untargeted public expenditure including various transfer payments has left Punjab in a financial bind which is weighing on public investment and the delivery of public services’.

The loan would help the state government introduce reforms to strengthen finances, encourage fresh investment and free up resources for priority spending needs, she added. It will be paid in three tranches against completion of agreed milestones.

ADB is also providing a technical assistance grant of $400,000 to raise the fiscal management skills of key institutions overseeing the reforms. This will run until June 2017.

Large committed expenditure had forced Punjab to borrow heavily in recent years ‘creating a vicious cycle of debt and deficit’, the bank said, while untargeted power subsidies were adversely affecting environmental sustainability by creating pressure on water resources.

Tarun Bajaj, joint secretary in the Department of Economic Affairs at India’s Ministry of Finance, said the money would be used to better target spending in health, education, power and public works and would help address environmental issues ‘that are undermining sustainability considerations through direct feedback loops from subsidy to water table depletion’.

Savings produced are expected to free up spending in other areas, allowing capital outlays as a percentage of gross state domestic product to rise from less than 1% in fiscal year 2012 to an expected 2.4% by 2016.

Fiscal savings between 2014 and 2018 are expected to reach $766m.


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